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Estimate the expected long-run dividend growth rate

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Reference no: EM132964318

Question - The average stock return of SSG PLC in the last ten years is 8.2%. At the end of 2019, the company's (current) dividend yield D0/P0 = 2.0%. Goldman Sachs, a leading global investment bank, predicts the company's dividend growth rates for the next five years are as follows:

2020 2021 2022 2023 2024

2.5% 5.2% 4.5% 4.3% 4.1%

Required -

a. Assume that the historical average return of 8.2% is a good benchmark. Interpret your results.

b. Estimate the expected long-run dividend growth rate if an investor expects to earn the average historic return of 8.2%.

Reference no: EM132964318

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